On February 21, 1991, Admiral Watkins testified before your
Committee on the Administration's National Energy Strategy.

Earlier today we submitted answers to questions from yourself and
Senators Ford, Wirth, Bingaman, Fowler, Nickles, Hatfield,
Murkowski, Seymour and Wallop to supplement the record.

Enclosed are answers to your question 1 (Oil Pipeline Deregulation) and question 2 (Enhanced Oil Recovery); Senator Wirth's questions 7, 8, 12, and 13, and Senator Wallop's question 1. The remaining answer to question 2 (ANWR) is still in the clearing process and will be forwarded to you as expeditiously as possible.

If we can be of further assistance to you or your staff, please contact our congressional hearing coordinator, Barbara Barnes, on (202) 586-6341.

Enclosures

Sincerely,

cqueline knox Brown
Assistant Secretary

Congressional and Intergovernmental
Affairs

QUESTIONS FROM SENATOR JOHNSTON

Qil Pipeline Deregulation: Why is this necessa

Question 1.

Answer.

What does the deregulation of oil pipelines have to do with increasing
domestic oil production?

The Administration's oil pipeline deregulation proposal will increase domestic oil
production. Under the Administration's proposed legislation, new oil pipelines
would be deregulated. Deregulation of new pipelines would remove significant
uncertainty regarding regulatory treatment and lower the cost of operation by
eliminating unnecessary regulatory costs. These effects make it more likely that
oil pipelines will be built to marginal production areas, thereby increasing
domestic supply.

In addition, current regulation makes it difficult for existing oil pipeline companies to discount prices for oil pipeline transportation. The Administration's proposed legislation would deregulate oil pipeline markets where producers and consumers are protected by competition. Deregulated pipelines would have more flexibility in pricing and discounting. Such pricing flexibility may also make marginal production areas economic to develop.

Enhanced Oil Recovery

Question 2:

Answer:

QUESTIONS FROM SENATOR JOHNSTON

How much additional domestic oil do you believe could be produced as a result of enhanced oil recovery technologies, and what steps can Congress take to facilitate this?

In the NES, enhanced oil recovery technologies are a portion of a more general category called "advanced oil recovery technology." This category includes both advanced secondary recovery and enhanced oil recovery technologies.

The proposed near-term research and development measures for advanced oil
recovery technologies would result in additional oil production of 1.4 MMBD by
2005. These measures would add total oil reserves ranging from 5 billion
barrels to more than 25 billion barrels, depending on the level of oil prices. In
the five-year period from 2005 to 2010, additional oil production from application
of near-term and long-term measures could be increased to more than 3 MMBD.
The use of EOR methods alone accounts for approximately 68% of that amount.

An aggressive EOR program will preserve access to existing, producing oil reserves by delaying well abandonments and increasing reserves and production. Because of cost and lack of technical resources, most independent oil producers cannot engage in R&D activities. They rely on the results of research performed by others. If oil prices are relatively low over the long term, and if technology advances are delayed, as much as 65% of the remaining oil resource not recoverable by conventional means could be in abandoned zones by 1995, and over 75% could be abandoned early in the 21st century. This abandonment

would only be reversed when the price of oil rises enough to justify resumption of the development of these resources.

The Congress has facilitated increased use of enhanced oil recovery technologies

by enacting a 15% tax credit for enhanced oil recovery as part of the tax incentive package included in the 1990 budget reconciliation legislation. Congressional support of the Department's FY 92 advanced oil recovery budget request of $52 million, an increase of 24 percent over the FY 91 request, would expedite implementation of these NES proposals.

QUESTIONS FROM SENATOR WIRTH

Probability of Finding Oil in ANWR

Question 7:

Answer:

For the purposes of the NES results, did you assume that recoverable oil would be found in the Refuge? What is your latest estimate of the probability of such a find?

Yes. This assumption is based on Department of the Interior (DOI) assessments of ANWR oil resources. These assessments are derived from seismic work in the area, studies of ANWR's surface geology, and data from similar geologic settings. In addition, ANWR is located between known petroleum provinces in the United States and Canada.

Recent DOI studies indicate that there is a 46% chance that economically recoverable oil may exist in ANWR. Moreover, if oil is found to be present in commercially recoverable quantities, the mean resource estimate is at least 3.6

billion barrels.

This 46% probability estimate combines both geologic and economic risk factors. The geologic risk factor includes, among other components: presence of a hydrocarbon source, timing of oil formation, occurrence of oil migration from source to traps, and quality of reservoir rock. The economic risk factor determines the minimum field size required for economic development in ANWR.